Sebon to study commodities market

The capital market regulator will be undertaking a detailed study of commodities exchanges to frame the regulation to rein over mushrooming commodities exchanges.
The High Level Financial Coordination Committee had directed Securities Board of Nepal (Sebon) to conduct a comprehensive study of the commodities market during its latest meeting.
“Sebon will hire an independent expert to conduct the study which will figure out how these exchanges are operating and what are they trading on, the modes of payments and all,” informed director of Sebon Niraj Giri.
According to the data made available by Company Registrar’s Office (CRO), there are 52 companies registered as ‘brokerage and exchange’ signalling a huge economic trouble in the future, if not tackled immediately, he added.
At present, the commodities exchanges are operating without any regulatory rein, making them financially ticking time bomb that will engulf many, if explodes.
Unlike other financial intermediary, the exchanges need not publish any statistics showing how much money is involved in the sector and the exchanges are not answerable to authorities regarding their business dealings as well. There is also no account of the money handled by the exchanges except of the amount shown as income and expenditure in their balance sheet for tax purposes, according to the experts.
“Even if the exchanges are duping the investors or creating fake trading there is no way of figuring that out in the absence of proper regulation and guidelines governing them,” Giri pointed out. Though the stock market is going through a period of bust, commodities market seems to have flourished lately. At present there are six commodity exchanges in operation — Commodities and Metal Exchange Nepal Limited (COMEN), Mercantile Exchange Nepal Ltd (MEX), Nepal Spot Exchange limited (NSE), Nepal Derivative Exchange (NDEX), Wealth Exchange (WEX) and newly opened Commodity Futures Exchange (CFX).
These exchanges allow the trading of crude oil, precious and industrial metals, natural gas and agro products based on futures, spot and options contracts. Since last budget the government had decided to bring law to supervise and regulate futures and commodities markets. Sebon being the capital market regulatory authority had been asked by the government to undertake the responsibility of supervising the inflating commodities market.
But the capital market regulator has to amend the existing Securities Act to include the commodities market under their jurisdiction. The amendment has to be endorsed by the cabinet to make Sebon a regulator for commodities exchanges– which are demanding regulator to look over their dealings to get public trust.


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SEBON has published a notice regarding opening of application for depositary participant.

Securities Board of Nepal (SEBON) has published a notice regarding opening of application for depositary participant.

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Securities Board of Nepal (SEBON) has published a notice regarding opening of application for depositary participant.

Securities Board of Nepal (SEBON) has published a notice regarding opening of application for depositary participant.

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CDS set to boost share market

The capital market regulator has expressed hope that the operation of central depository company will change the face of the secondary market.
“Since the operation of Central Depository System (CDS) will displace manual share transfer with automated system allowing the hassle free participation of investors outside the valley in trading due to easier settlement,” said chairman of Securities Board of Nepal (Sebon) Baburam Shrestha in a press conference organised to discuss CDSC bylaws today.
CDS is supposed to promote securities market in the cities outside the capital where despite the presence of brokerage services the difficulty of share transfer and settlement has discouraged the transaction, he added.
At present it takes about two months for the shares to get transferred and settled by the stock exchange.
“CDS and Clearing Ltd (CDSC) will start the operation within one month at latest,” he said. The CDSC was granted license by the capital market regulator last August but it has not been able to get the operations started due to delay in getting its bylaws approved from the regulator.
Last week, regulator has also approved the company’s bylaws paving the way for the operation of eagerly awaited central depository.
Earlier, the board had refused to approve the CDSC bylaw and directed it to revise the fee structure as the transaction would have been expensive affair for the investors. “The current fee structure is determined at minimum threshold so that company will be at break-even point,” chairman said.
The regulator has not yet given membership to the depository participants that are an integral part of central depository’s settlement process. The depository participants will hold the investor’s records in a dematerialised form. They will act like bank for the securities while CDSC is going to be the clearing house that will settle the account after each share transactions.
According to the CDS Regulation-2068 any a bank or financial institution, stock broker, registrar and transfer agent, custodian or such other entity as may be prescribed by the board from time to time. The depository participants need to have Rs 1 million net worth to get license.
“Merchant bankers seem to be better suited as depository participants due to net worth and infrastructure which brokers lack but the adjustments might be made in order to include the stock brokers as depository participants,” director of Sebon Niraj Giri, said, adding that the larger the number of depository participants more beneficial for the investors.
The operation of CDSC will contribute in higher number of transaction as dematerialisation of physical scrip will make multiple transactions possible in a single day,” said director of Sebon Parishta Poudel. “The CDSC will deposit the bonus shares and shares bought in public offerings automatically in the investors account at depository participants.”
The listed companies need to apply to get their shares dematerialised to CDSC within the six months of its operation.

Ceiling increased

KATHMANDU: The government is going to increase the ceiling for source disclosure while trading in the share market from current Rs 1 million to Rs 10 million. “We have completed necessary consultations with Finance Ministry and Nepal Rastra Bank and they have agreed in principles,” informed chairman of Securities Board of Nepal Baburam Shrestha. The ceiling fixed as per anti money laundering law is partially blamed for pulling down stock market. However, the government has to inform Financial Action Task Force about the decision as the international body has reservation on Nepal’s case.

Source: THT

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Sebon holds interaction on ratings biz

Participants at an interation programme on modalities for credit rating agencies, which the capital market regulator is planning to allow in the country, suggested to introduce provisions to penalise deliberate manipulation of ratings by crediy rating agencies. “The rating agencies’ credibility is of utmost importance and the regulation will make sure that agencies’ interests do not reflect in their ratings,” said Dr Shurbir Poudel, chairman of Securities Board of Nepal (Sebon) at the programme.

“The provision for penalty can be subject to changes thus it will be mentioned in the directives not in the proposed Act,” he said, adding that the operation of these agencies will improve corporate governance in the listed companies. Presence of these agencies will also ensure that companies are not able to raise money from public if they are not credible enough. “We can hope that establishment of credit rating agencies will make the companies more responsible and improve their governance,” Poudel added. The proposed regulation will make credit rating mandatory for the companies that want to tap the capital market for funds.

Any company that plans to issue corporate debentures or preferential shares needs to get itself rated by a credit rating agency, according to the draft prepared by the capital market regulator. Also, it is mandatory for the company that is issuing bonus and right shares exceeding Rs 100 million in value to get themselves rated, the draft says. The draft also has provisions for any individual borrower that needs to borrow over Rs 100 million from banks and financial institutions to get their credit ratings done. The regulation will also open up partnerships with foreign credit rating agencies. A foreign credit rating agency can own 25 per cent to 75 per cent equity in the credit rating agency. “As credit rating agency is a novel concept, it is better if the agencies can be established in partnership with foreign credit rating agency so that agencies in Nepal can take benefit of their expertise,” he informed.

“There are companies that score well in fit and proper test despite being troubled thus credit rating agencies need to look beyond such covers,” said Nepal Rastra Bank (NRB) director Bashudev Adhikari. He also pointed out that the minimum limit set for mandatory credit rating should be brought down to include rating of IPOs of regional development banks and finance companies. The participants also emphasised on the need of clarifying the indicators on which credit rating agencies will rate the companies in order to remove any distortions or ambiguities in the future and their credibility can be intact.

“The credit rating fee should be subject to competition. Therefore, there is no need to mention in the proposed Act. Moreover, in case of large IPOs, even a small rate as fee is really a big amount for the exercise, said Dipak Raj Kafle, former chairman of Sebon. Based on the financial indicators of a company or an individual, the rating agencies rate their credit worthiness and financial soundness. The ratings help layman investors to decide for themselves whether or not to be involved with that particular company, along with helping the banks and financial institutions in making decision regarding lending to the company.
source: Himalayan times

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Stock market keeps fingers crossed for rebound in new year

Gloom marked the domestic capital market throughout 2010, but a number of policy measures that have been implemented recently may give it a boost in 2011.

Investor confidence sank to the lowest ebb in the year gone by amid political uncertainty. And despite the introduction of regulations governing mutual funds and the central depository service (CDS), the stock market did not rebound as was expected.

The Nepal Stock Exchange (NEPSE) index has been hovering around 400 points presently compared to a high of 1175.38 on Aug. 31, 2008. The NEPSE had plunged to a low of 390.88 points on Dec. 19. “Until the political environment improves, the policy measures taken to improve the capital market will not yield any fruit,” said Surbir Poudel, chairman of the Securities Board of Nepal (SEBON), the regulator of the capital market.

Political differences are widening instead of narrowing, and whether the Constituent Assembly will be able to bring out the constitution by May 28 is uncertain. Investors are concerned what will happen if the constitution is not written by the deadline.

At the same time, the performance of the financial industry in 2011 will be crucial to the revival of the stock market as it accounts for more than 80 percent of the shares listed on NEPSE. Banks and financial institutions were forced to stop credit to investors in shares amid a liquidity crisis, and that also affected the performance of the stock market in 2010. “Investors are also not seeing any benefits in putting money in stock by borrowing at the currently high interest rates,” said Nanda Kishore Mundada, president of the Nepal Stockbrokers Association. “If the liquidity problem in the banking sector eases resulting in a decrease in interest rates, it will give a boost to the capital market,” he added.

SEBON has introduced some essential policy measures including mutual funds and CDS regulations and portfolio management guidelines that have paved the way for non-resident Nepalis (NRNs) to invest in the stock market. The budget for the current fiscal year has vowed to allow NRNs to invest in Nepal. Likewise, the process of establishing the CDS is advancing despite various hassles. NEPSE has recently opened a subsidiary company to run the CDS after attempts to establish a company in partnership with banks and financial institutions failed amid differences over the paid-up capital.

With work progressing to start operation of the CDS and a number of companies initiating homework to establish companies to run mutual funds, an increase in the number of investors can be expected. The CDS will eliminate physical share certificates and manual clearance and settlement thereby speeding stock trading. The dematerialized account in the CDS works as a virtual bank of listed stocks facilitating online transfer of share ownership which will enable investors outside the Valley too to participate in trading.

Poudel said that mutual funds would intervene in the market to correct untoward fluctuations as institutional investors.

Suman Rayamajhi, chief executive officer of Beed Invest, a portfolio management company, said there was an urgent need for additional investors to create demand as there was a glut of shares in the market.
source: ekantipur